Mexico mining chief favors tax help for cash-strapped miners

By David Alire Garcia

4 Min Read

MEXICO CITY, April 15 (Reuters) - Mexico's top mining official says he backs the industry's push for tax legislation that would save hundreds of millions of dollars a year in exploration costs, though they have yet to win over the country's powerful finance ministry.

Mario Cantu, the economy ministry's mining chief, said in an interview on Thursday that Mexico's mining lobby is seeking a series of meetings with members of Congress to also press its case for tax help for the ailing sector.

"The mining chamber ... is making its argument and asking for support," he said, adding he is also lobbying for the tax change to help miners as they grapple with multiyear lows in metals prices.

Mexico is the world's biggest silver producer, as well as a Top 10 gold and copper producer.

It may be an uphill slog for companies to again be able to deduct exploration costs in the same year they are incurred. The deduction was eliminated in 2013 just as new mining taxes were enacted.

The change is opposed by Mexico's powerful finance ministry, which said in a statement to Reuters it has "no plans" to formally propose it.

"It isn't appropriate because it would only allow immediate investment deductions for the mining sector," the ministry said in a statement.

The value of total mining production in Mexico last year stood at $13.5 billion, down about one-quarter since 2012.

If the deductions are adopted by Congress, it would mark a victory for the cash-strapped sector, struggling through the worst market downturn in a generation.

Base metal prices for copper and lead have slid by about 50 and 30 percent, respectively, since early 2011.

Meanwhile, silver has tumbled more than 70 percent over the same period.

Cantu said he thinks Congress will likely approve the deduction during the session that begins in September.

"We think this can provide more benefit by creating and identifying the best future mines," he said.

The deduction for exploration costs would involve a significant hit to the country's tax take. Total private-sector mining investments for exploration in Mexico stood at $1.17 billion in 2012, though it is expected to be just above $600 million this year.

Like many of the country's biggest miners, Grupo Mexico , a top copper producer, has cut exploration spending by more than one-fifth since 2012 to about $49 million last year.

While President Enrique Pena Nieto's Institutional Revolutionary Party has consistently been able to pass its legislative priorities without having an outright majority in Congress, internal divisions within the government could doom passage of the deduction.

Cantu, a former finance ministry and tax official, said he also thinks Congress will permit mining companies to deduct spending on community development.

While it is unclear how much mining firms in Mexico spend on social projects, many have built local schools and hospitals, and top precious metals miner Penoles even donated a zoo in northern Zacatecas state.

Mining companies are pushing for the deductions as new taxes have cut into their bottom lines.

Tax reform in 2013 included mining taxes that raised 2.66 billion pesos ($153 million) during the first three months this year, according to data from Mexico's tax agency. ($1 = 17.3865 Mexican pesos) (Editing by Jeffrey Benkoe)